Residential Fund 1

Overview

Launched in December 2017, the Fund has been designed specifically for institutional investors seeking a strategic allocation to high quality private rented residential assets in the UK. It seeks to invest at scale in selected areas where strong rental demand is expected to provide the basis for a reliable, stable income stream offering good inflation protection. Our strategy also seeks to identify under-supplied markets where healthy consumer demand is expected to support capital growth over the long term.

The Fund is the sole focus of Hearthstone Investment Management Limited, a 50:50 joint venture between the Fund’s senior management team and Hearthstone Investments plc.

Fund objective is to provide a strong and stable income return (a net distributable income before fees of at least 4.5% on stabilisation), supplemented by capital growth.

Investment style is core: the Fund is unleveraged and will not take development risk. Investments will be made for the long term to limit turnover costs. Nevertheless, it will seek to exploit opportunities to add value through active asset management and through strategic rebalancing.

Fund size is targeted at £200 million. The Fund is open to new investors for a limited period of 12 months from first close.

Diversification will be achieved through a combination of the Fund’s scale and a strategy to ensure exposure across a spread of unit sizes, geographies, tenancy lengths and tenant employment profiles.Strategyis to acquire and actively manage good quality, market rented residential stock in areas of strong rental demand across the UK, including a mix of apartment blocks and clusters of houses. Acquisitions will include bulk purchases of newly-built stock from housebuilders, and standing investment assets.

Stock selectionwill focus on efficient-to-manage, readily lettable flats and houses, typically ranging from one to four bedrooms, particularly suitable for young professionals and families, and with attractive local amenities.

Fund structure is an English Limited Partnership, a widely used and tax transparent structure. The Fund is closed-ended, with a life of 10 years.

Exit strategy will be determined through formal consultation with investors. Options include planned full or partial liquidation, extension options or the creation of a new follow-on vehicle for investors wishing to maintain exposure to the sector.

Income is distributed to investors, after deduction of operating costs and expenses.

Governanceis based on industry best practice principles. An independent Investment Committee is mandated to review and approve the Fund’s Investment Plan and all transactions. An investor-led Advisory Committee reviews operational matters, and acts as a formal communication forum with the Fund’s management team.

Terms and conditions

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Hearthstone Investments PLC is the parent company of the Hearthstone Group. Regulated activities associated with the TM Hearthstone ICVC are carried out by Hearthstone Asset Management Limited, which is an authorised representative of Thesis Asset Management Limited, authorised and regulated by the Financial Conduct Authority (114354).

Regulated activities associated with the Hearthstone Residential Fund 1 are carried out by Hearthstone Investment Management Limited. Hearthstone Investment Management Limited is an appointed representative of Langham Hall Fund Management LLP, an entity which is regulated and authorised by the Financial Conduct Authority of the UK.

Regulated activities associated with the Housing Fund for Scotland are carried out by NCM Fund Services Limited, an entity which is regulated and authorised by the Financial Conduct Authority of the UK.

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